Recent Report: Bitcoin price is expected to reach a new high within the year

In February, the price of Bitcoin surged by 45%, breaking through the $60,000 mark, just 9% away from its all-time high. This significant increase may have been driven by the newly launched U.S. spot Bitcoin ETF attracting a large influx of funds, as well as market expectations for the upcoming Bitcoin halving event.

Against the backdrop of mixed performance in traditional assets, the cryptocurrency market delivered impressive results in February 2024. This is primarily attributed to the continuous influx of funds into newly listed spot Bitcoin ETFs and various positive developments in the industry fundamentals.

Currently, the main risks facing the valuation of digital assets may come from the direction of the Federal Reserve's monetary policy. The inflation data from February has risen again, which may delay the interest rate cut until later this year or longer.

From the perspective of absolute return and risk-adjusted return, Bitcoin and Ethereum both ranked among the leaders in cryptocurrencies and traditional financial assets in February.

The global bond market has generally fallen this month as a rebound in inflation has weakened expectations for interest rate cuts by the central banks of the US and Europe. The stock market, on the other hand, has mostly risen, with China and other emerging markets standing out the most.

Although the correlation between cryptocurrencies and traditional markets has increased in recent years, the outstanding performance of major digital currencies in February once again highlights the advantages of crypto assets as a tool for portfolio diversification.

The strong performance of Bitcoin largely reflects that the newly launched US spot Bitcoin ETFs have attracted stable capital inflows. From the launch on January 11 to the end of the month, the 10 spot Bitcoin ETFs saw a cumulative net inflow of $1.46 billion. In February, this trend clearly accelerated, with the total net inflow soaring to $6 billion for the month. The estimated total net inflow for the entire cryptocurrency ETP market in February reached $6.2 billion, more than double the monthly record since October 2021.

It is worth noting that since the launch of the spot Bitcoin ETF, U.S.-listed gold ETFs have seen net outflows, which may suggest that investors are shifting from one "store of value" asset to another.

From the perspective of capital inflow into the spot Bitcoin ETF, with the current block reward rate, the Bitcoin network generates about 900 new coins per day. Assuming an average price of $60,000 per coin, this amounts to a daily new supply of approximately $54 million. By April 2024, Bitcoin will experience its four-year "halving" event, at which point the daily new supply will be halved to 450 Bitcoins, equivalent to about $27 million.

In February, the average daily net inflow of the spot Bitcoin ETF listed in the United States reached $208 million, far exceeding the current and even post-halving daily new supply. This significant imbalance between demand and supply may be an important factor driving the increase in Bitcoin's valuation.

Despite Bitcoin's strong performance in February, it still lagged slightly behind the second-largest crypto asset, Ethereum, which saw a 47% increase that month. The market seems to be preparing for an important upgrade to the Ethereum network on March 13. This upgrade aims to reduce data costs by providing dedicated storage space on the Ethereum mainnet for layer two networks, with the hope of improving operational efficiency.

The best-performing segments in February were utility and service cryptocurrencies, with an increase of up to 53%. This category includes some tokens related to artificial intelligence technology, some of which have achieved significant gains.

The financial cryptocurrency sector has risen by 34%. Among them, the governance token of a well-known decentralized exchange has surged significantly, as the platform is considering directly allocating a portion of the trading fees to holders of staked tokens and delegated voting rights.

In February, as the valuation of cryptocurrencies rose, trading volume and various on-chain metrics also climbed, especially on the Ethereum network. For example, the average daily spot trading volume of Ethereum reached 5.8 billion USD in February, setting a new high since September 2021. The total transfer value on the Ethereum network also rose to its highest level since June 2022.

The total market capitalization of stablecoins has increased by 5.5 billion USD this month. In related news, a stablecoin issuer announced that it will stop supporting the stablecoin on a certain public chain. Currently, about 80% of this stablecoin is circulating on the Ethereum network, with only about 1% on that public chain.

Driven by the inflow of funds into Bitcoin ETFs and several positive factors, the cryptocurrency market has performed strongly this year. However, an important lesson from the last crypto cycle is that macro factors such as the Federal Reserve's monetary policy and economic conditions could have a significant impact on the valuation of crypto assets.

If the macro market outlook remains optimistic, many favorable factors, including the Bitcoin halving and the upcoming Ethereum upgrade, may drive token prices further up this year. Given that the current price of Bitcoin is only 9% lower than its historical high, it is expected to reach a new all-time high later this year.

In contrast, a less favorable macroeconomic environment may suppress the rise in valuations. In the fourth quarter of 2023, Bitcoin may benefit from the Federal Reserve's shift from raising interest rates to lowering them. If the Federal Reserve lowers interest rates in the coming months, it could weaken the dollar, thereby supporting the valuations of dollar-competitive assets, including Bitcoin.

However, the downward trend in US inflation in January seems to have slowed or stalled, and the market is beginning to worry that the inflation outlook may rise. If inflation remains high, Federal Reserve officials may consider delaying interest rate cuts until later this year or 2025. Generally speaking, rising US interest rates may benefit a stronger dollar, which is unfavorable for Bitcoin.

We believe that the most likely scenario is that U.S. consumer price inflation will continue to decline, ultimately prompting the Federal Reserve to cut interest rates. However, cryptocurrency investors should closely monitor the upcoming inflation reports, as well as the updated policy rate guidance from the Federal Reserve's meeting on March 20.